Farm outlook: Good cashflow will be key to successful 2024

A tight rein on cashflow will be key for farmers wanting to optimise their business performance this year, say analysts.

Balancing input costs and farm output will remain a challenge over the coming months, says Andersons Outlook 2024– the annual forecast for the year ahead published by the farm business consultancy.

Production costs have eased during the past year – but so too have commodity prices. This means returns in 2024 will remain under pressure after a tough 2023. But the best performing farm businesses will still be profitable.

Ag-inflation remains a challenge across the sector. Some individual input costs, including feed and fertiliser, have fallen. But overall costs look set to remain high, says the report. Even if inflation falls through out 2024, some costs may still rise as firms look to catch up, it warns.

Tighter margins

Then there is the issue of timing on farm profits. For 2023, many inputs were purchased at peak cost with farm output sold into falling markets. This means many farm businesses face tighter margins going into 2024.

“These lower returns will be making themselves felt just as many businesses will have large tax bills to pay in January – caused by the high profits of previous years,” says Andersons partner Richard King.

“In cash terms, a lot of that profit will not be available because it has been tied-up in working capital to buy expensive inputs. ”

Adding to the pressure is the rise in borrowing costs, adds Mr King.

“Farms which have loans and overdrafts on variable rates will have seen a sharp increase in the monthly cash payments required to service these borrowings. Finally, the amount of direct support coming into bank accounts is going to be much lower.”

Future support

The phase-out of the Basic Payment Scheme (BPS) means many farmers received at least two-thirds less in direct support for 2023 compared to 2020 – with larger farms facing even higher reductions. In 2024, the minimum cut will be 50%.

In addition, BPS payments are now being split, with half paid in the summer. This means top-up payments to bank accounts traditionally seen in December will be far smaller.

Regular payments under the Sustainable Farming Scheme may help to smooth cashflow in future. But only early-adopters will see much benefit this winter. Farmers should therefore consider their cash demands for the next few months carefully.”

Simple ledger

“This need not be a sophisticated cashflow calculation,” says Mr King.

“A simple ledger of likely out- goings and incomings will provide a good sense of whether there is likely to be a cash crunch.

“Early discussions with lenders are likely to receive a favourable hearing as long as the underlying business is sound. Last-minute calls to extend overdrafts are unlikely to be accommodated so easily.”

Partial recovery for arable sector

Arable profits will partially recovery in 2024 – but will remain lower than they were a just few years ago.

The net margin for an average-performing arable farm for harvest 2024 is expected to be £258/ha, suggests farm business consulant Tom Coate Strutt & Parker. This compares with a net margin of £208/ha for harvest 2023.

That said, net margins will remain well below 2021 and 2022. “While this is not a new message, it once again highlights the benefits of growers understanding their costs of production and monitoring fixed costs.

“Working capital requirements for farms rose by 40% to £173,604 in 2023 for an average performing 131ha farm. This is expected to reduce in 2024 but still put pressure on farm cashflow and finance requirements.